Why Nations Fail: The Origins of Power, Prosperity, and Poverty

army, was taken north as the North Korean army retreated. Dragged apart in 1950, they met again in 2000 in Seoul for the first time in fifty years, after the two governments finally agreed to initiate a limited program of family reunification.
    As a doctor, Hwang Pyŏng-Wŏn’s brother had ended up working for the air force, a good job in a military dictatorship. But even those with privileges in North Korea don’t do that well. When the brothers met, Hwang Pyŏng-Wŏn asked about how life was north of the 38th parallel. He had a car, but his brother didn’t. “Do you have a telephone?” he asked his brother. “No,” said his brother. “My daughter, who works at the Foreign Ministry, has a phone, but if you don’tknow the code you can’t call.” Hwang Pyŏng-Wŏn recalled how all the people from the North at the reunion were asking for money, so he offered some to his brother. But his brother said, “If I go back with money the government will say, ‘Give that money to us,’ so keep it.” Hwang Pyŏng-Wŏn noticed his brother’s coat was threadbare: “Take off that coat and leave it, and when you go back wear this one,” he suggested. “I can’t do that,” his brother replied. “This is just borrowed from the government to come here.” Hwang Pyŏng-Wŏn recalled how when they parted, his brother was ill at ease and always nervous as though someone were listening. He was poorer than Hwang Pyŏng-Wŏn imagined. His brother said he lived well, but Hwang Pyŏng-Wŏn thought he looked awful and was thin as a rake.
    The people of South Korea have living standards similar to those of Portugal and Spain. To the north, in the so-called Democratic People’s Republic of Korea, or North Korea, living standards are akin to those of a sub-Saharan African country, about one-tenth of average living standards in South Korea. The health of North Koreans is in an even worse state; the average North Korean can expect to live ten years less than his cousins south of the 38th parallel. Map 7 illustrates in a dramatic way the economic gap between the Koreas. It plots data on the intensity of light at night from satellite images. North Korea is almost completely dark due to lack of electricity; South Korea is blazing with light.
    These striking differences are not ancient. In fact, they did not exist prior to the end of the Second World War. But after 1945, the different governments in the North and the South adopted very different ways of organizing their economies. South Korea was led, and its early economic and political institutions were shaped, by the Harvard- and Princeton-educated, staunchly anticommunist Syngman Rhee, with significant support from the United States. Rhee was elected president in 1948. Forged in the midst of the Korean War and against the threat of communism spreading to the south of the 38th parallel, South Korea was no democracy. Both Rhee and his equally famous successor, General Park Chung-Hee, secured their places in history as authoritarian presidents. But both governed a market economy where private property was recognized, and after 1961, Park effectively threw the weight of the state behind rapid economic growth, channeling credit and subsidies to firms that were successful.

    The situation north of the 38th parallel was different. Kim Il-Sung, a leader of anti-Japanese communist partisans during the Second World War, established himself as dictator by 1947 and, with the help of the Soviet Union, introduced a rigid form of centrally planned economy as part of the so-called Juche system. Private property was outlawed, and markets were banned. Freedoms were curtailed not only in the marketplace, but in every sphere of North Koreans’ lives—except for those who happened to be part of the very small ruling elite around Kim Il-Sung and, later, his son and successor Kim Jong-Il.
    It should not surprise us that the economic fortunes of South and North Korea diverged sharply. Kim Il-Sung’s command economy andthe Juche system soon proved to be a disaster. Detailed statistics are not available from North Korea, which is a secretive state, to say the least. Nonetheless, available evidence confirms what we know from the all-too-often recurring famines: not only did industrial production fail to take off, but North Korea in fact experienced a collapse in agricultural productivity. Lack of private property meant that few people had incentives to invest or to exert effort to increase or even